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Cotton price recovery looking for new support level

POSTED: December 4, 2013 6:05 p.m.

This is especially true for producers in South Georgia. We still have some cotton grown in North Georgia in counties such as Oconee, Bartow, Gordon and Floyd.

For Georgia, cotton is a $1.5 billion industry that has international ties. This is never more apparent than when you begin to study market futures.

After falling below 77 cents on Nov. 22, March 2014 futures prices have attempted a recovery. This is welcomed news.

Prices fell 170 points on Nov. 22 but then advanced 179 points on Nov. 25 and another 91 points on Nov. 26 to bring us back above 79 cents. Prices closed the week at 79.35 cents per pound.

With this “recovery,” it’s hopeful the recent downturn is over and a new floor of support is now in place around the 77-cent area for March futures. If this floor holds, a price range of 77 to 82 cents can be expected.

Prices have begun to strengthen on the basis of strong U.S. export sales at these price levels and reaction to China beginning sale of cotton from its reserves. As expected, China began auctioning cotton from its huge national reserves on Thursday and this will continue through Aug. 1.

Sales were only 25 percent of the available amount on Thursday and 59 percent on Friday. Chinese mills have complained about the quality of the fiber and about the price — which is significantly above the price for competing imports from countries such as India and the U.S.

U.S. export sales have been good, with China being a major buyer. Initially, market concerns over the pending sale of Chinese stocks were among the reasons for the recent downturn.

China, however, still continues to import cotton despite the availability of stocks and the fact export supplies in the rest of the world are relatively low. As long as Chinese mills are allowed to do so and as long as export sales are good, the new support level should hold.

Chinese sources report the China crop is expected to be 30.7 million bales compared to the current United States Department of Agriculture estimate of 32.5 million bales. This should add further support to prices.

New crop (December 2014) futures prices are currently around 77 cents. With the recent developments mentioned above, there is suddenly beginning to be some concern about reduced cotton acreage in 2014.

Clearly, current prices at less than 80 cents will not likely attract acreage. If more cotton acreage is needed/warranted, the market for December 2014 futures will have to improve enough to bid it in.

Few if any growers are likely to begin taking price protection at less than 80 cents.

New USDA numbers will be out Tuesday.

Source: Growinggeorgia.com — Don Shurley, Extension Economist-Cotton, UGA College of Agriculture and Environmental Sciences, Tifton Campus

Michael Wheeler is county extension coordinator for the UGA Cooperative Extension in Hall County. You can contact him at 770-535-8293, www.hallcounty.org/extension. His column appears biweekly on Thursday’s Business page and at gainesvilletimes.com.


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